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• Portfolio Strategy is a roadmap by which
investors can use their assets to achieve their
• It refers to the design of optimal portfolios
and its implication .
• Portfolio strategies are mainly of two
types; which are active portfolio
strategies and passive portfolio
• An investment approach in which an investor uses a variety
of forecasting and assumption techniques
to determine which securities to purchase in order to achieve
a high return.
• An active portfolio strategy is more likely to buy
and sell securities with greater frequencies as the investor
seeks to move available capital into more profitable stocks.
• A strategy that uses available information
and forecasting techniques to seek better performance than
a buy and hold portfolio.
• Top-down Approach: In this approach, investors observe the
market as a whole and decide about the industries and
sectors that are expected to perform well in the ongoing
economic cycle. After the decision is made on the sectors, the
specific stocks are selected on the basis of companies that are
expected to perform well in that particular sector.
• Bottom-up: In this approach, the market conditions and
expected trends are ignored and the evaluations of the
companies are based on the strength of their product
pipeline, financial statements, or any other criteria. It stresses
the fact that strong companies perform well irrespective of
the prevailing market or economic conditions.
• It is an investing strategy that tracks a market-weighted
index . The idea is to minimize investing fees and to
avoid the adverse consequences of failing to correctly
anticipate the future.
• It relies on the fact that markets are efficient and it is
not possible to beat the market returns regularly over
time and best returns are obtained from the low cost
investments kept for the long term.
• It relies on diversification to match the performance of
some market index.
• Efficient market theory: This theory relies on the fact
that the information that affects the markets is
immediately available and processed by all investors.
Thus, such information is always considered in
evaluation of the market prices.
• Indexing: According to this theory, the index funds are
used for taking the advantages of efficient market
theory and for creating a portfolio. The index funds can
offer benefits over the actively managed funds because
they have lower than average expense ratios and
• Patient Portfolio: This type of portfolio involves making
investments in well-known stocks. The investors buy and hold
stocks for longer periods. In this portfolio, the majority of the
stocks represent companies that have classic growth and those
expected to generate higher earnings on a regular basis
irrespective of financial conditions.
• Aggressive Portfolio: This type of portfolio involves making
investments in “expensive stocks” that provide good returns and
big rewards along with carrying big risks. This portfolio is a
collection of stocks of companies of different sizes that are rapidly
growing and expected to generate rapid annual earnings growth
over the next few years.
• Conservative Portfolio: This type of portfolio involves the
collection of stocks after carefully observing the market returns,
earnings growth and consistent dividend history.
• 1) How Much Risk Can An Investor Tolerate ?
• 2) Establishing the Appropriate Asset Allocation
• 3) Portfolio Rebalance: A Cost/Benefit Analysis
• 4) Portfolio Performance Measurement
• 5) Market Innovations